I think lends some more credibility to the story of investor preferences shifting. Neil, let’s talk about things that we never really want to talk about, which is this idea of what’s happening in the financial plumbing. And those are the calls that I make to people to say, hey, how is this stuff happening?
And when I say financial plumbing, what I mean is the reason why you can have your paycheck direct deposited and then withdraw cash at the ATM machine, the pipes that connect those two, that’s the financial plumbing. And it’s all around the globe for the dollar.
I made some calls to people, Neal, and one guy said to me, we’re not the story now, but we’re getting closer. So give us your idea or your sense at all what’s happening inside the financial plumbing.
Does this rate in a way that was near or close to what happened in the pandemic, or are we still far away from that and we shouldn’t be worried about that? I think we’re quite a ways away.
From that. I mean, during the pandemic, the pandemic was so unique because the virus was so unknown and how dangerous it was was so unknown that people fled all sorts of assets stocks, bonds, everything. Corporate bonds, treasuries and they just wanted cold, hard cash.
And that’s where the fed had to step in, in a very profound way to flood the system with liquidity. Ultimately we have the ability to manage some of these transitions. So if there’s a dislocation I’m not forecasting this but if there were a dislocation, we have the ability to smooth out that dislocation.
But going back to the discussion on yields, we’re not going to be able to change where yields ultimately settle. All we can do is make that transition path a little less rocky. But the settling of where yields end up settling that’s that depends on trade policy and fiscal policy and US economic competitiveness. You don’t want to stop the Fed’s hands.
You don’t want to stop the market from getting to a new equilibrium that it wants to be at. You can only smooth the transition there. Correct. We don’t have the ability to stop it settling or wherever it wants to settle. All we can do is smooth the transition. If there is, if there are big dislocations in markets.
But I’m not seeing big dislocations yet. I’m seeing some stresses, but markets seem to be adjusting. Okay so far, Neil. I didn’t like either scenario for why what was happening, what was happening. You know, one inflationary expectations are going back up or two, we’re becoming less attractive as the as the place to invest both time.
I don’t I can’t even pick. That’s like a Sophie’s Choice. Given the number we saw yesterday. You think that was an outlier. The CPI number. And is that make it even more troubling that there probably isn’t a reason to ratchet up inflationary expectations?
So then the only answer would be that, you know, we’re less attractive as a place to attract capital, which I don’t think we want that. I don’t think the Trump administration, at least if it was explained that way, I don’t think they’d want it either.
Well, when we dug into the CPI data, there was a lot of good news under the hood. One, you know one of the biggest drivers of the high inflation of the past couple of years has been housing. We’ve done a lot of analysis. That said, as new leases turned over, the housing inflation ought to be coming down. That trend seems to be continuing.
As we as we expected based on the new lease data. So I think the fundamentals of the soft landing of inflation have been in place. It’s been continuing.
That’s been good news. But given the big moves in trade policy for the past few months and the market dynamics that we’ve just been talking about it’s pretty stale pretty quickly. And I think even the tariffs after the pause, you know, the effect of tariffs are still 100 year highs.
Source: raialkhalij + aljazeera